Apogee Enterprises Inc (APOG) 2010 Q2 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Q2 fiscal 2010 Apogee Enterprises, Inc. earnings conference call. My name is Deanna and I'll be your coordinator for today. At this time all participants are in a listen-only mode. However, we will facilitate a question-and-answer session at the end of this conference. (Operator Instructions). As a reminder this conference is being recorded for replay purposes.

I would now like to turn the presentation over to your host for today's call, Ms. Mary Ann Jackson. You may proceed.

Thank you, Deanna. Good morning and welcome to the Apogee Enterprises fiscal 2010 second quarter conference call on Thursday September 17, 2009. With us on the line today are Russ Huffer, Chairman and CEO, and Jim Porter, CFO. Their remarks will focus on our fiscal 2010 second quarter results and the outlook for the current year.

During the course of this conference call we will make forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.These statements are based on current expectations and the current environment and are, of course, subject to risks and uncertainties, which are beyond the control of management. These statements are not guarantees of future performance and actual results may differ materially. Important risks and other important factors that could cause actual results to differ materially from those in the forward-looking statements and projections are described in the Company's annual report on Form 10-K for the fiscal year ended February 28, 2009, and on our earnings release issued last night and filed on Form 8-K.

Russ will now give you a brief overview of the results and Jim will cover the financials. After they conclude Russ and Jim will answer your questions. Russ?

Thanks, Mary Ann. Good morning and welcome to our conference call. We had a very strong operating performance in the second quarter and exceeded prior-year earnings per share on revenues that were down consistent with the decline in the commercial construction market. We earned $0.46 per share on continuing operations, up 7% from the prior-year period, on revenues of $187.4 million, which were down 23% from last year. A number of positive events occurred in the quarter that allowed us to perform at this high level. We were executing architectural work largely bid in better times, we operated well and improved productivity, and we managed our cost in anticipation of lower revenues. These actions show our ability to lower our break-even point and to operate profitably through a commercial construction cycle. As a result of the combination of these positives our operating margin was 9.5%, up from 7.7% in the prior-year period.

We also continued to generate cash, increasing cash and short-term investments more than $20 million from the prior quarter to $52.3 million at the end of the second quarter. We achieved an architectural segment operating margin of 8.7% compared to 6.7% in last year's second quarter. We benefited not only from those items I just noted, but also from some favorable material costs. Again, on a positive note our architectural segment backlog declined less than 5% to $295 million. This is the third quarter that the segment's backlog has been hovering around $300 million. Our large-scale optical segment also performed well, with revenues up slightly and operating income up 11%, as we saw a strong mix of our best value-added picture framing glass and acrylic products in the quarter. Our superior product attributes, which prevents fading and control reflection, are allowing us to continue to convert customers to our value-added products despite weak retail markets.

Our strong performance aside, we continue to face commercial construction markets that are impacted by tightly -- by tight commercial real estate credit and decreasing employment levels. We know future periods will be tougher due to the construction slow down but we are in a strong financial position. We have a healthy balance sheet and are generating positive cash flow.

Before turning to our outlook I'd like to provide more color on our architectural backlog. As we had expected our mix shifted more towards institutional projects in the second quarter. Institutional projects now account for 55% to 60% of our backlog, up from 40% to 45% in the first quarter. Office projects have slipped to 25% to 30% of the backlog from 35% to 40%. The condo and hotel entertainment sectors each contri -- continue to comprise 5% to 10% of the architectural backlog. Stimulus projects contributed to the increase in institutional backlog. We have been awarded General Services Administration and Department of Defense projects on the stimulus list, such as a federal court house and a military hospital, and are actively bidding on other projects on the list. We'll see some revenues from this work this year, but the majority of the work will flow to next year. We also are seeing an increase in international work by our architectural glass business in our backlog, although it is a small part of the overall backlog, and we are quoting more international work than we have in past years. I am encouraged that we continue to see our competitive advantages holding for large complex architectural glass and highly-engineered window projects, as well as for installation project bonding capacity. More projects are requiring performance bond in this environment.

Next I'll cover our outlook. Our solid performance to date in these challenging economic times supports our outlook for continued profitability. For fiscal 2010 we continue to expect a mid single-digit operating margin on revenues that we anticipate will be down 20% to 25%, as project timing for new orders has shifted into fiscal 2011. We had previously anticipated fiscal 2010 revenues would decline at least 15%. We also continue to expect our large-scale optical segment to convert more customers to higher value-added products despite soft retail markets. Since Apogee is a late cycle, commercial construction company and our markets have yet to show signs of a rebound we expect that fiscal 2011 will be tougher than the current year.

I am proud of our performance to date during this downturn, which has positioned us to operate well throughout a commercial construction cycle. With our improved performance, on-going productivity enhancements and superb products for green building we believe we have lowered our break-even point. We are seeing some success in filling in backlog for fiscal 2011 and believe we are well-positioned financially and in the marketplace, especially with our leading green energy-efficient building products. To manage through the downturn we have aggressively reduced our costs, including headcount and overhead costs. We are down more than $45 million on an annualized basis to date, including headcount reductions of more than 25% from our peak a year ago. We also keep working continuously on productivity improvements across our operations.

Our balance sheet remains strong and we expect to generate positive cash flow throughout fiscal 2010. We have good architectural businesses with strong brands and operations that are positioned to serve the growing interest in green energy-efficient commercial buildings. Apogee will be well positioned when commercial construction markets improve. We have production capacities in place, our plants have been upgraded to the state-of-the-art and we are committed to the strategies that will allow to us grow, gain share and deliver significant shareholder value.

Jim will now comment on the financials. Jim?

Thanks, Russ. We were pleased with our second quarter performance and results. We earned $0.46 per share from continuing operation, up from $0.43 per share in the prior-year period, with good cash flow generation. We had strong margin performance compared to the prior year, as we executed work largely bid in better times, operated well, improved productivity and managed costs. We estimate that roughly 60% of our revenue in the quarter had been booked in stronger markets and thus had higher margin potential that we delivered on. Gross margins were 25.9% in the quarter, up from 19.8% last year. Operating margin was 9.5%, up from 7.7% in the prior-year period. Net earnings were $0.47 per share versus $0.43 last year. The current quarter included $0.03 from a lower tax rate resulting from finalization of previous tax positions we had taken. This was a one-time second quarter event. We also had discontinued operations earnings of $0.01 per share from favorable resolution of an old outstanding international claim in the current period.

As expected revenues were down 23% from the prior year, reflecting the slow commercial construction market. Although we're making in-roads in gaining institutional, smaller projects and international work, the significant overall market decline is impacting architectural revenue. Our two largest businesses, architectural glass and installation, experienced the largest declines in sales. Large-scale optical revenues were up slight until difficult retail markets. Both segments had improved operating margins compared to the prior year. The architecture segment margin was 8.7% compared to 6.7% last year, due to higher pricing and projects selectivity on projects bid in stronger markets, solid project execution, productivity improvements, cost reductions and some favorable material cost. As Russ indicated, it was all of these items together that resulted in the strong margin. The large-scale optical operating margin was 22.9% compared to 21.3% last year, due to stronger mix of our best value-added products.

Our second quarter capacity utilization in the architectural segment averaged approximately 60% compared to approximately 60% in the first quarter, for 65% in the fourth quarter and approximately 85% capacity utilization a year ago. Our architectural capacity utilization at the bottom of the last cycle was roughly 60%. We increased our cash position significantly in the second quarter. We generated approximately $25 million in free cash flow in the quarter and approximately $28 million year to date. We define free cash flow as net cash from continuing operations less capital expenditures. Capital expenditures year to date were $5.9 million, down from $39.2 million in the first half of fiscal 2009. Last year we completed key strategic capital investments in both segments that position us for efficient growth when markets improve. Cash and short-term investments totaled $52.3 million at the end of the second quarter, up from 20 million -- up more than $20 million from 38 -- $30.8 million at the end of the first quarter. Our day sales outstanding held at 43 days, a low level for Apogee. In general we feel good about the quality of our receivables.

I'll turn to our outlook. For the full year we continue to expect mid single-digit operating margins on slightly lower revenues. We are now expecting revenues to decline 20% to 25% compared to our prior outlook of down more than 15%. We expect margins to be lower in the second half of the year than our first half performance, as our second half backlog includes a greater percentage of work bid and committed to since the economic downturn. Our current visibility into fiscal 2011 is lower than normal, and as Russ said, we expect 2000 -- fiscal 2011 will be tougher than the current year. Although the economy has started to show signs of recovery commercial construction markets remain down significantly, with higher vacancies and tight credit conditions for commercial real estate and Apogee is a later cycle company.

We remain focused on cost reductions and productivity improvement in an effort to somewhat offset the impact of declining revenues on earnings. Improving productivity remains a strong focus during the slow down. The slow down in large projects for our architectural glass business has opened up production capacity and reduced lead times, allowing this business to pursue opportunities to generate revenues by penetrating under-served markets, including lower-margin smaller US projects and international projects, where we are seeing some success. At the same time we continue to focus our sales efforts on markets that demand our value-added, energy-efficient aesthetic, hurricane and glass products. We've seen strong bidding activity for projects in the institutional sector for education, healthcare and government projects. This sector traditionally tends to be more stable through the ups and downs of commercial construction cycles and green building is an important trend for institutional work. We're also continuing product development efforts, particularly related to energy efficiency. I'm encouraged that part of the economic stimulus package is focused on efforts to make public buildings more energy-efficient. We've already won some of this work and are pursuing additional projects, although it's primarily fiscal 2011 work.

We continue to pursue our longer-term strategies to gain share in our markets; identifying attractive international markets for architectural glass, potential with offshore glass fabrication, developing new energy-efficient products and systems for the green building trend, expanding our store front and standard window presence and converting more of the picture framing market to value-added glass and acrylic. We expect to continue to generate cash. Our priorities for use of cash are to look for opportunities to invest in and grow our international architectural glass business, where we already have a leading international brand but without current offshore fabrication. We'll also continue to invest in maintenance and safety, productivity improvements and new product development. We plan to continue paying our dividend and beyond that we intend to conserve cash to see us through the commercial construction downturn until we can see increased visibility to the market recovery.

In conclusion, we have good businesses with leading products and services. We continue to aggressively manage costs and drive productivity, expect to generate positive cash flow this year and are carefully managing working capital and capital expenditures. We are focused on effectively weathering the slow down and emerging stronger than ever when our markets rebounds. Russ?

Thanks, Jim. I want to reiterate that we really have a strong balance sheet, continue to generate positive cash flow and expect to maintain our leading market positions during this challenging time. I'd like to go ahead and open the call to questions at this time.

Operator?

(Operator Instructions). We have a question from the line of Eric Stine, Northland Securities. Please proceed.

Good morning. Congrats on a great quarter.

Thank you, Eric.

I was wondering if we could just start with margins and you could just help us out a little bit, walk us through the components. Certainly it was very strong margin quarter and in the first quarter your commentary had been that not to expect the level that we saw there and certainly that was not the case in the second quarter?

Yes, Eric, this is Jim, so I'll address that. I think in general probably the simplest way to respond to that is we tried to articulate it was really the accumulation of many aspects across all of our businesses really just lining up; as we indicated the timing of products. And in our business one of the most difficult things to predict is the specific timing flow of shipments to a project. And so when we look at some of the timing, as well as the mix of deliveries during the quarter with a nice amount of that being projects bid during strong time periods combined with cost reductions, productivity improvements, it's really a number of things all lining up in the quarter to really drive that strong performance.

Okay. Materials cost, was that a major portion of it in the quarter?

The two primary drivers from a material cost perspective are going to be glass and aluminum and we did see a benefit from that, roughly a point of margin in the quarter.

Okay. And the just your thinking on keeping operating margin guidance relatively the same, is the main component there just that you're now getting into business signed since the downturn started?

Yes.

Okay. Maybe we could just move to your commentary related to 2011. When you talk about it being a tough year, are you including any stimulus impact in there, or would you consider that on top of that guidance?

I would say we're including some of that. Certainly we've seen a few projects now flow into our backlog that we'll be recognizing most of the revenue in fiscal 2011. We would anticipate to be able to win other projects. I think even when the -- yes, so I -- we don't see it as being incremental, we see it as part of what we're projecting right now.

Okay, that's helpful, and then last question. As far as backlog can you just talk about, did you see any cancellations, or was it similar to the first quarter where you really didn't see much at all?

Yes, we really -- we didn't see much at all. I don't recall anything specifically. There might have been something small in there, but --

Okay, thanks a lot. Great quarter, again.

Thanks.

You have a question from the line of Tyson Bauer, Wealth Monitors. Please proceed.

A couple follow-up questions to Northland's there. First one was, obviously given your outlook for the rest of the year and you've done in the first here where it appears to be falling off a cliff on the margin side, if that holds true would you expect then that those run-rate margins to follow through or drag on into fiscal '11, and I guess you would foresee that by giving us a little clue on those backlog margins, have they steadied or are they continuing to deteriorate?

So we see a declining rate of margins over the balance of the fiscal year, which will clearly establish the run rate into fiscal '11. We do expect to be profitable throughout the remainder of fiscal 2010.

And positive cash flow.

Right.

Right. When you talk about '11 and the stimulus is somewhat in that outlook, is that implying then that we could still see a reduction in revenue on the top line? Obviously the margins will be lower and the earnings, but is the revenue also at risk from '11 compared to '10?

It can be. It's just that we have such an unclear picture that we can't project that. I'd love to say that we've reached the bottom, we can't say that. We know that there is a potential for further decrease, but there is nothing that's showing that it's going down and there's nothing that's showing that it's stable. I just couldn't give you a good answer.

We're planning the business on the assumption that we do see some continued declines in revenues next year.

Great. And then just backing in and somewhat rhetorical, it would appear your second half gross -- or operating profit won't even meet what you had done in Q1, so that'll be something to keep an eye on. But the last question is, the office market, even though it's a lower percentage, 25%, 30% of the backlog, is that still the one segment that you're the most nervous on given as we get into the refi situation and also unemployment being at 9%, close to 10%?

And again we -- and I appreciate both of those are accurate. We do focus a little more on employment numbers rather than unemployment because we're looking for a net add of jobs to help us turn the corner here and clearly financing is something it needs to come through, so both of those are still likely ahead of us and we'll be watching for those as our inflection point for the future.

All right, thanks a lot, gentlemen.

We have a question from the line of Jon Braatz, Kansas City Capital. Please proceed.

Good morning, gentlemen. Good quarter. Most of my questions were answered but a couple things. I think, Jim, you mentioned that 60% of your backlog -- or 60% of your revenue came from backlog that was priced in better markets, better markets before the recession. What type of number might we be looking at as we go forward into the second half? Does that move up to -- move down to 20%, 10%, 30%, can you give us a little color on that?

Yes, I guess the best way to answer it is that we will see that gradually decline over the balance of the year.

Okay, okay. All right. Secondly, in your commentary about why the margins were so good in the quarter you did cite that there were some good execution in some of the projects -- and sometimes you have some execution problems, sometimes you don't. Were these unusually exceptional good execution and that's hard to replicate or hard to even think that you could -- they could reoccur?

We're a pretty good strong Six Sigma company, we've been focused on continuous improvement for many years. I think we've made a change for the better structurally within our Company on these kinds of jobs, so I do expect us to continue to execute better than we did in the past. Does that mean we'll have no problems? No, that's not true. You're always subject, but I think there will be less of them and less frequently that we will see them. So I do see a positive side to this and be able to keep some of these gains in productivity and execution that we've experienced here recently.

Okay.

Some of it, Jon, they're really -- as we said, it's really a number of factors. In some cases we've seen improved, consistent project execution when we look at the mix of projects that are flowing through, so in some cases we might have had a little bit more mix just based on customer deliveries of some of these good projects flowing through. But also, in our installation business, which is our percentage of completion business, we'll periodically have change orders and the way that business works is that you will incur -- you may incur cost to execute a change order but you're not able to recognize the revenue or the margin on that until you actually get the signed change order. We did have some change orders in the quarter. They weren't material drivers of the performance but. again. just -- and those are the factors that you can't really predict quarter to quarter that do flow through. But again, just all the things coming together in the quarter.

Lastly, two other questions, you mentioned that you're doing -- trying to increase your international work. Margins on the international work, are they -- how do they compare to domestic margins? And secondly, do you -- when you look at the -- your revenue or your expectations as you go out towards 2011 do you anticipate any additional need to cut back, let's say, employment as you look out forward?

The first question on the international work, international work, as you might anticipate, is lower priced, but it is -- and this is in our glass fabrication business. We do -- we are able to make up for some of that pricing because the international work tends to fit with our manufacturing capabilities more favorably. We're able to actually run -- take advantage of larger volumes, longer runs, and therefore get more through -- signifi -- actually a nice difference in throughput productivity, so all of that price is not given away. So the bottom line is, is it somewhat lower margin, yes, it is, but not as much as one might think. So it's very good work for us to be running and putting through our factories, so we're real pleased to have that any time we can get it.

Okay. And then secondly, regarding as you look at expectations for next year in terms of additional cuts and reductions that you might have to take?

I have clearly said to our people that we need to make sure we're state-of-the-art in our factories, we have our best and trained and keep people throughout this time period, and we're going to right si -- keep our businesses right-sized. So if there's a change we will change with that. We will go up and down with it, but we will maintain our factories and keep our key people throughout this time period and that's the best way to get through it. It gives you the highest productivity in it and it also positions you the best for the turnaround at the end and it inevitably will come. This is a cyclical business, so -- go ahead, Jim.

We do have some additional reductions that have been planned and are being executed subsequent to the end of the second quarter. For example, some picked up that we reduced headcount further in our window business, but we do have some continued cost reduction activities. But as it does relate to fiscal '11 we also continue to contingency plan. The third quarter will be an important quarter for to us see bidding activity and what's happening. That'll -- when we come out of third quarter we'll have a lot more visibility into what fiscal '11 looks like and so we're developing plans to correspond to that.

Okay, thank you, Jim.

Your next question will come from the line of Robert Kelly. Please proceed.

Good morning, Russ, Jim.

Morning.

Good morning, Bob.

A question on the 60% of higher margin revenue you had booked in the quarter, could you tell us the gross or the operating margin on that business?

No, we don't break it out that way.

We had talked about longer term with some of the productivity enhancements and cost reductions, architectural being a 10% business from volume -- 10% operating margin business when volumes bounce back. In light of 60% utilization during the current quarter, is that a conservative projection?

Yes, Bob, as you understand there's a lot of factors that come into it and we talk about it on an annual basis and do continue to believe that we have the potential to get there. Not to repeat it too many times, but there really was the line-up of these factors in the quarter where we're combining a lower cost structure on lower volume, in some cases with revenue that was bid in a higher market condition environment., so we don't see these conditions all lining up on a regular basis, but we do continue to believe we've got the Company positioned to achieve those levels that we've talked about.

Bob, this is Russ. One of the things that I would say to you about the improvements and institutionalizing the improvements and making sure that they're there as we go forward in this construction cycle, I think that we will achieve higher margins sooner in the next cycle and be able to exceed the margins that we achieved in the last cycle, and so the cause of this drive for continuous improvement and making sure that we hold on to the gains in these areas as we go forward.

Okay, great. Now the backlog that you signed up thus far exiting 2Q., 42% of it for fiscal '11 and '12, is that evenly split?

No.

No.

The majority of it's fiscal '11. If I had to pick a number it's probably about $20 million of it that goes out to fiscal '12.

Okay.

But those longer time periods, those are projects where the actual schedules tend to move around a fair amount as you get closer to them.

Right, they can move up or back.

Okay, so the key now is to find some of the short-cycle business that the production capacity has been open for?

Right, short cycle and international work are the two fill-ins.

And was that prevalent in Q2 '10?

We did make some nice improvements in those areas and we continue to be focused on it.

Not specifically to backlog, more the revenue booked in the quarter. Were they --

Right. There was short term work that actually turned over in the quarter, so it wouldn't even have shown in the backlog.

And is that the 40% that represents the margins now?

Well, it would be a part of the 40%, because there would still be the traditional core work in there for the majority of that, but these would be the add-ons that helped us make the quarter.

Okay, great. And then just one, you talk about the mid single-digit operating margins for F '10 but that's kind of inflated because we just exited the first half with an 8% op margin. Obviously the margins are dropping off but are they dropping off to the low single digits, or can you still do amid single-digit operating margin on a revenue decline in F '11 given the cost cuts and the raw material declines? And I think that's what everyone's trying to figure out right now.

Yes, I think we're not at a point yet where we have enough visibility to make that outlook for next year.

Okay. Thanks, guys.

Yes.

We have a question from the line of Eric Glover, Canaccord Adams. Please proceed.

Hi, good morning, guys.

Morning, Eric.

I was just wondering if you could comment a little bit more on your international expansion plans, like what region or country are you zeroing in on for a new manufacturing plant and how much might that cost?

The international work, I'll just start with where we have the strongest brands and the best markets. So we have strong brands Middle East, South America, Far East, Pacific Rim. Best markets today are going to be South America and Far East, so that really brings us back to those two. That's where we're putting our energies today and determining where the best place to go is. We're encouraged -- I would tell you that we're encouraged by both of those locations so I don't -- I can't give you an indication of one versus the other. And I would also say that the cost of the facility is likely to be similar to the cost that we had for St. George, which was a little over -- I think it was a little over $30 million, but there would be adds to that for the cost of doing business overseas, so it'd be a little over $30-million plus probably for the facility that we would have in mind today.

Eric, I'll just add to that. Specifically in terms of where we're looking, in the Pacific Rim we look at servicing that whole region and actually the two markets that we're probably zeroing in on from our evaluate standpoint to service those markets are China and Thailand. And then in South America the primary market that we're looking at servicing is Brazil, and so looking at operations either in or nearby Brazil that can service those two markets. The majority of our effort is really focused on which of the markets are attractive enough to have sustainable volume that we're in operations there. And then the range of investment, as Russ said, the truth is it can vary depending on how we go to market, whether we do a green field, the range of capabilities that we put in place, and so there's probably a range of more like $30 million to $50 million in terms of an initial investment.

All right, great. Thanks very much.

We have a question from the line of Michael Martin with SmallCap Report. Please proceed.

Good morning and congratulations. Just two items. Can you give us any more color on the potential from the stimulus program and how it's meeting in terms of expectations?

The stimulus program, we've been working this pretty hard. We've met a couple of times with the General Services Administration folks that are in charge of the -- allocating the funds and selecting projects and setting specifications and we feel very good that the decision-making process will put our products and services in a good light. so we like competing in this market. We think that we -- the things we do fit well with it. There are a number of projects that are out there that are -- that have not been bid, that have not come forward but we expect those, so we're encouraged with the beginning and we believe that there will be some nice opportunity. I actually think that they will find that they're going to like the prices in today's markets, too, and that will enable them to keep going ahead with these projects and move forward. So we remain optimistic about the stimulus projects.

Our strong presence across the institutional segment is really great and so for the federal projects we have the clear line-of-sight back through the stimulus bill. We're also bidding a lot of work that's at the state, county or municipal level, which is a little bit more indirect as funds trickle down that's allocated to the states for those areas, as well, so we don't have that direct connect point but we do see that as a positive, as well.

Does this have the potential to -- looking out a year or so to be 3%, 4%, 5% of your total business or is it smaller than that?

I think you're probably on target there. Yes, maybe a little better.

Okay. The other question, in past economic cycles what has been the pattern of the recovery in your business versus the general recovery in the economy in terms of timing?

We're generally about nine months behind.

Yes, okay.

On average. I go back a couple of cycles. The last one was a little even more delayed because of the over building that took place, so it was a slower recovery. I don't think over building is going to be the cause of slower recovery. I think the rate of recovery this time is just going to be the recovery of the general economy. I think however fast it goes that's how fast we'll go and we'll just be slightly behind.

And employment is going to be the key factor. Our lag is going to be once we see employment start to grow.

When employment starts to grow do you think you could get back to significantly better margins?

Again as I said earlier, I think the way we're positioned today and the way we've improved our Company we will get higher margins sooner in the construction cycle than we did the last time and I think we'll be able to exceed the peak, so those are both good things.

Terrific. Thank you very much.

You have a question from the line of Scott Blumenthal, Emerald Advisers. Please proceed.

Good morning.

Good morning, Scott.

Jim, I guess most of the questions have been asked but can you talk about energy costs during the quarter and the extent that they could have contributed something to the pretty good performance that you had with the energy intensity of your business?

Sure. Probably the two key drivers from an energy perspective that have impacted the business really are prob -- the primary is going to be in natural gas as it relates to the way we by glass and so it's really our suppliers pass on an energy surcharge related to natural gas and we did see some benefit from that in the quarter. And then the other energy related is primarily going to be related to diesel and fuel costs in terms of our transportation expense. Our primary energy usage in our facilities is electricity and so we didn't say a benefit associated with that.

Okay. Do you think that it could have been a penny or two in the performance year over year?

I'd say $0.01 to $0.02 a share probably.

Okay. And I guess the only odd thing that I would touch on here is, Russ, you did mention that you are stepping up some of the product development initiatives in order to keep the Company moving forward and with all of this cash that you have you've got the capability to do that. Can you give us some idea as to the extent that you're going to be pushing forward with those?

Yes, we -- there's some nice projects. We have some in final stages right now that give us an enhanced total window energy performance. We're really looking at the ways that we can make the whole windows system more energy efficient and we have final stages of testing and specifications so we can publish the performance of the products. We continue to bring new coatings to market, other products that also enhance aesthetics, as well as energy performance. Those are always important. And then we -- lastly we've been putting some effort into -- there's a DOE directive to further bring daylight in -- further into a building. Right now they estimate daylight utilization of about 15 feet, they're trying to get it to 30 feet so you can reduce artificial lighting. We're looking at ways of redirecting the sun's energy -- the light energy that comes through the windows further inside the offices, so there's efforts going on in all of those areas. All of these are -- none of them are big dollars. All of them are just focus in energy and attention that it takes to get them done.

We also have some CapEx dollars targeted for the fiscal year to upgrade our capabilities to produce some of these projects.

Right, some of the -- specifically some of the coating types require some coater upgrades and we're in the process of doing those.

Are you undertaking some of those R&D initiatives by yourself, or is this in conjunction with maybe some of the local universities or somebody else that you've done research with in the past?

We do cooperate with universities and other entities in new product development. That's always been sort of at the core, so we're always -- we welcome technology from the outside. We have contracted with Lawrence Berkeley Labs, University of Minnesota to help us in the design of the products. In other words, we ask them -- there's always a little bit of -- our world is dominated by aesthetics and oftentimes the aesthetics tends to override true energy efficiency, so we've asked Lawrence Berkeley Labs and the University to help us understand specifics of specifications and so we've been designing products to those new specifications that optimize energy efficiency and that's been a nice effort for us, as well. So a lot of things going on in those areas.

Terrific. Thank you.

(Operator Instructions). Your have a question from the line of Brad Kelly, Magnum Opus Financial. Please proceed.

Good morning, guys.

Good morning.

Morning.

Question about international markets. It sounded like the focus in the international is really on the manufacturing side. Are you guys now doing so much of the installing or production in terms of international?

No, international is just delivery of glass, so it would be fab -- where right now we're focused on exporting more fabricated glass to the markets and our expansion is the -- actually doing that glass fabrication overseas.

Okay. So right now you're just delivering but the goal is to actually do the creation of the glass on the floor where you're --?.

Fabrication of it, not installation.

Okay. And then in the countries that you mentioned you did not indicate, really, a big interest -- at least specifically -- in either India or places in Africa, are either of those places that you could find yourself down the road, or China and Brazil really are where you see the most opportunity?

Today the opportunity is in China and Brazil. There is opportunity clearly in India and Africa. We have shipped numerous projects to India and we evaluate and have looked at Africa, as well. It's just that the current markets and what we anticipate going forward in Brazil and China appear to be the most robust. We have to be careful that we're always focused on higher value-added energy-efficient products, and so a robust market may or may not support that specific focus of higher value added and energy efficiency and so we have to be careful about that and watch that as we analyze these other markets.

Okay. And specifically related to that higher efficiency, more of the green building segment that you alluded to, does that mean in terms of green building that you guys have an opportunity to replace existing glass in already finished commercial construction, or what percentage of your business in green building is derived from new construction versus going back and making a building more energy efficient through your product?

Your point is very good. Traditionally about 20% of our output was in retrofit and renovation and 80% new construction. In the green building sector we have identified renovation as a very important focus for our businesses going forward. We worked with -- again, I mentioned earlier we worked with General Services Administration, developers, architects, others, and the point we're getting at, on these older buildings that have very old systems -- and I'm talking systems more than 20 years old, so 40 years old, so to speak -- we can reduce the energy con -- peak energy demands on those buildings by over 60%, so -- with window replacement and other lighting and HVAC upgrades, so -- and just by themselves lighting and HVAC is about 25%, so the added windows is a big boost.

Now the issues then become, are you focused on energy efficiency? Commercial buildings have to be focused on tenants, their willingness to -- can they get higher occupancy, higher lease rates by making the building green? People are believing that's true and where they are, they're making those kinds of plans. So we're a sup -- we are working hard to make sure the market understands the total value we can bring to that effort and we believe that we'll have some success with it. There's a large market out there that is a potential target market for us.

Excellent. So going forward then we might imagine that some of the decline in new construction can be offset revenue-wise by a focus on making existing buildings more energy-efficient, especially if the stimulus leans in that direction?

Yes, we believe that that longer term that that's true, and like I said it's a focus for us today to make sure that we're out there planning the seeds, getting people to understand that, make that part of their thought process and decision-making process.

All right, really appreciate it, guys. Thank you.

This concludes the question-and-answer session of the conference. I'd like to turn the call back to the host for any closing remarks.

All right. No, thank you very much. We really appreciate all of the time today and the interest in Apogee, so thank you very much.

Thank you for your participation in today's conference. This concludes the presentation. You may now disconnect and have a good day.